Hero MotoCorp’s Q2 a smooth ride; demand recovery, EV developments key for stock

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26 Aug, 2025 12:21

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Hero MotoCorp Ltd’s September quarter operating profit was above expectations, though analysts are somewhat cautious on the prospects for the stock due to muted demand outlook.

This comes after shares of the motorcycle and scooter manufacturer have significantly underperformed the broader Nifty 200 index, so far, this calendar year. In other words, valuations of the Hero stock are not demanding, trading at about 14 times the average FY23 earnings per share (EPS) estimates of eight brokerages.

The pace of demand recovery needs to be watched ahead. All eyes will also be on how the electric vehicle (EV) segment unfolds and the news flow on this front would be critical for investors. Hero MotoCorp is set to launch its first EV product by March 2022.

According to analysts from Nomura Financial Advisory and Securities (India), sales of regular scooters – known as internal combustion engine (ICE) scooters – and possibly the non-electric segment may have peaked in FY19.

“Thus, execution in EVs will be a key catalyst to watch for,” the Nomura analysts said in a report on November 15. “Hero MotoCorp has a multi-pronged approach with its own EVs, tie-up with Gogoro and investment in Ather. However, it will not be easy to achieve similar market share in EVs as ICE (about 37 percent) as several new players are also in the fray.”

Nevertheless, a successful EV launch may act as a trigger for the Hero stock.

Also read: Hero MotoCorp after Q2 results: Should you buy, sell, or hold the stock?

JM Financial Institutional Securities expects Hero MotoCorp to draw support from rural sales, leading to an 11 percent volume CAGR (over FY21-24E). CAGR is the compound annual growth rate.

“We estimate standalone EPS to post around 21 percent CAGR over FY21-24E. Delayed recovery in demand and continued commodity inflation are key risks to our call,” JM Financial said.

Nomura’s target price for the Hero stock is Rs 2,981 while JM’s is Rs 3600. The Hero stock gained 0.5 percent to Rs 2,696.95 on the National Stock Exchange at 1:32 pm on November 15.

Q2 revenue declined almost 10 percent year-on-year to Rs 8,453 crore. Better price realisation set off weaker volumes to some extent. The year-on-year sales volume declined by about 20 percent whereas net realisation rose by 13 percent. Hero MotoCorp saw muted festive demand during the quarter. Rural demand was subdued as well.

Cost savings and higher spare-part revenue helped the company’s operating profit performance. EBITDA (earnings before interest, tax, depreciation and amortisation) decreased by 17 percent year-on-year to Rs 1,066 crore, beating analysts’ estimates. The EBITDA margin contracted 112 basis points year-on-year to 12.6 percent. One basis point is one-hundredth of a percentage point.

Net profit declined 17 percent to Rs 794 crore, in line with the drop in EBITDA.

“Given demand weakness, we are cutting FY23E EPS by 8 percent,” analysts from Edelweiss Securities said in a report on November 13. “A rising share of exports and potential filling out of white spaces (premium bikes, scooters, EV) are the key triggers.”